Accounting Test 10

Recording an installment note

DEbit Intrest Expense Debit Notes Payable Credit cash for the amount of the payment

Fringe Benefits

Expense that are recorded by Debiting expense account crediting a liabilities account

Peachtree Company borrows $30,000 from the local bank at 7% interest. The term of the note is five years, and the annual payments remain constant at $7,317. Determine the decrease in notes payable that Peachtree Company should record in the first year. a. $5,217 b. $2,100 c. $1,735 d. $7,317

a. $5,217 This represents the amount of the note payment, which includes a portion of principal and interest.

A debtor is referred to as a a. borrower. b. payee. c. lender. d. creditor.

a. borrower.

A five-year note payable would appear on the balance sheet as a(n) a. current liability for any portion due within one year. b. intangible asset. c. long-term liability for the entire amount owed. d. disclosure in the notes only.

a. current liability for any portion due within one year.

A company provides a one-year warranty with its products. Product warranty payable would appear on the balance sheet as a a. current liability. b. disclosure in the notes only. c. long-term liability. d. selling expense.

a. current liability.

An installment note that is secured by the purchased asset is called a(n) a. mortgage note. b. interest-only note. c. principal note. d. short-term note.

a. mortgage note.

A contingent liability that is reasonably possible a. should be disclosed only. b. should be recorded only. c. does not require treatment. d. should be recorded and disclosed.

a. should be disclosed only.

Peachtree Company borrows $30,000 from the local bank at 7% interest. The term of the note is five years, and the annual payments remain constant at $7,317. Determine the interest expense Peachtree Company should record in the first year. a. $7,317 b. $2,100 c. $5,217 d. $1,735

b. $2,100 This represents the decrease in the notes payable for the first year. $30,000 × 7% = $2,100;

On January 8, Cargo Co. issued a $60,000, 6%, 120-day note payable to Roadside Co. Using a 360-day year, what is the maturity value of the note? a. $63,600 b. $61,200 c. $61,600 d. $60,000

b. $61,200 $60,000 + ($60,000 × 0.06 × 120/360) = $61,200.

Which of the following taxes is paid by the employee and the employer? a. SUTA b. FICA c. FUTA d. Federal withholding taxes

b. FICA

In determining an employee's net pay, which of the following taxes would be deducted? a. FUTA taxes b. FICA taxes c. SUTA taxes d. All of these choices are correct.

b. FICA taxes FUTA and SUTA are the employer's responsibility. Of this list, only the FICA taxes are deducted to determine the employee's net pay.

Employees are not subject to a. social security tax. b. state unemployment tax. c. federal withholding tax. d. medicare tax.

b. state unemployment tax.

Blazer Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 2,800 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1 and 70% in Year 2. In the income statement for Year 1, Blazer Company should show warranty expense of a. $8,400. b. $0. c. $28,000. d. $19,600.

c. $28,000.

All of the following are other deductions that employees may choose to have deducted from their gross pay except a. life insurance. b. dental insurance. c. Medicare insurance. d. retirement savings.

c. Medicare insurance.

A distinguishing feature of the installment note is a. interest-only payments until maturity. b. its term of exactly one year. c. equal periodic payments. d. None of these choices are correct.

c. equal periodic payments.

Interest expense is reported as a. other expense on the balance sheet. b. other revenue on the balance sheet. c. other expense on the income statement. d. current liabilities on the income statement.

c. other expense on the income statement. Expenses are assets used up or services consumed in the process of generating revenues. Revenues and expenses are reported on the income statement.

The cost of a product warranty should be included as an expense in the a. future period when the cost of repairing the product is paid. b. future period when the product is repaired or replaced. c. period of the sale of the product. d. period the cash is collected for a product sold on account.

c. period of the sale of the product.

The agreed-upon monthly payment on an installment note normally consists of a. principal only. b. any amount able to be paid. c. principal and interest. d. interest only.

c. principal and interest.

The payroll register of Sara Company indicates $5,800 of social security tax withheld and $1,450 of Medicare tax withheld on total salaries of $90,000 for the period. Assume earnings subject to state and federal unemployment compensation taxes are $31,500 at the federal rate of 0.8% and the state rate of 5.4%. What is the total amount of payroll tax expense? a. $7,502 b. $8,951 c. $7,250 d. $9,203

d. $9,203

Estimating and recording product warranty expense in the period of the sale best follows which of the following? a. Cost principle b. Materiality concept c. Business entity assumption d. Matching principle

d. Matching principle

A company is involved in a lawsuit for which the contingent liability is remote. The liability should be included on the balance sheet as a. a disclosure in the notes only. b. a current liability. c. a long-term liability. d. None of these choices are correct.

d. None of these choices are correct.

Examples of current liabilities are all of the following except a. accounts payable. b. short-term notes payable. c. current portion of long-term debt. d. accounts receivable

d. accounts receivable

The following totals for the month of July were taken from the payroll register of Lakeside Company: Salaries $16,000 Social security and Medicare taxes withheld 900 Employees federal income taxes withheld 2,500 Medical insurance deductions 450 Federal unemployment taxes 32 State unemployment taxes 216 The journal entry to record the monthly payroll on July 31 would include a a. debit to Salaries Expense for $12,150. b. credit to Salaries Payable for $11,902. c. debit to Salaries Payable for $16,000. d. credit to Salaries Payable for $12,150.

d. credit to Salaries Payable for $12,150.

Accounts payable would appear on the balance sheet as a a. long-term liability. b. current asset. c. disclosure in the notes only. d. current liability.

d. current liability.

The entry to record an installment note payment would include a a. debit to Cash. b. credit to Interest Expense. c. credit to Notes Payable. d. debit to Notes Payable.

d. debit to Notes Payable. The entry to record an installment note payment includes a decrease to Notes Payable.

Scout Company sold $15,000 of merchandise in September with a three-month warranty. The cost to repair defects under warranty is estimated at 5% of the sales price. The journal entry to record the estimated warranty expense for the month of September will include a a. debit to Product Warranty Payable for $7,500. b. credit to Product Warranty Payable for $7,500. c. credit to Product Warranty Expense for $750. d. debit to Product Warranty Expense for $750.

d. debit to Product Warranty Expense for $750.

A contingent liability that is probable and for which the dollar amount can be estimated should be a. disclosed only. b. recorded only. c. neither recorded nor disclosed. d. recorded and disclosed.

d. recorded and disclosed.

Current Liabilities

obligations that are to be paid out of current assets within the year

Installment Note

requires the borrower to make equal periodic payments to the lender for the term of the. note Each note consists of principle and interest